Silver Stock Report
by Jason Hommel, November 21, 2006
GMO was up 10% today, on 3 times normal volume, I think in part because I sent out the following letter to 130,000 newsmax money readers this morning (which was a revision of a previous letter)
See my previous version here:
My Top Stock Pick, October 2, 2006
http://www.silverstockreport.com/email/gmo.html
Here’s the report:
Subject: The Best Mining Stock in the World.
Silver Stock Report
by Jason Hommel, November 20, 2006
I’ve been investing and writing about mining stocks since 1999, and the best mining stock in the world in my opinion, is the one that will most likely move up in price the most. The following company should be worth about $1-3 billion dollars, which would imply a share price of about $17 to $51, and yet the stock is trading at $2.45/share.
Disclaimer: I own 549,000 shares of Idaho General Mines (which was over 10% of my net worth), and just today, I placed an order to sell 100,000 shares to diversify a bit, and raise cash for a private placement in another stock that also has great potential.
Idaho General Mines (Symbol: GMO trading on the AMEX)
http://www.idahogeneralmines.com/
41.5 million shares issued and outstanding
58.8 million shares fully diluted
@ $2.46/share
$145 million market cap (fully diluted)
The company has $36 billion worth of proven and probable reserves.
They have a completed feasibility study (the plans to mine) indicating cash costs are about 11% of the value of the reserves, so about 89% of what they pull out of the ground will be pure profit! Interested?
But it’s even better, because they don’t have $36 billion paper dollars in the ground that can go up in smoke, it’s a mineral that is vital to world growth, and demand is expected to grow faster than mine supply for many years.
If this were a gold mine, the gold equivalent, at $625/oz. would be 58 million ounces of gold in proven and probable reserves, with a feasibility study indicating cash costs of $68/oz.!
This would be, by far, the largest gold mine in the world, with the lowest cash costs in the world.
If this were a silver mine, the silver equivalent, at $12.73/oz. would be 2,827 million ounces of silver in proven and probable reserves, with a feasibility study indicating cash costs of $1.40/oz.!
It wouldn’t much matter if GMO had gold or silver. If they had either silver or gold, this stock would be worth about $1-3 billion in market cap in today’s markets.
At $3 billion, (counting fully diluted shares) that implies a stock price of $51/share! That’s 21 times higher than the current $2.46/share!
But, actually, the mineral is not gold, nor silver, it’s molybdenum! Pronounced mah-lib’-da-num. Or, “moly” as it is called.
The beauty of moly is that we don’t have to wait for prices to skyrocket, because they already have, which has created this incredible investment opportunity. Moly prices have risen over ten fold up to a high of $40/lb., and have recently bottomed out around $22/lb., and are back up again at $27.50/lb.!
The company has 1.3 billion pounds of molybdenum in reserves at Mt. Hope. Cash costs are $3.15/lb. (11% of today’s moly price of $27.50/lb.) The mine life is expected to be 53 years, and they plan to produce 35 million pounds of moly per year for the first 5 years.
The free market, which is the most efficient and most profitable economic system ever, is based on allowing prices to freely move, as prices are the best indicator of telling us investors what the world wants and needs, and what to invest in.
If you believe in the efficiency of the free market at all, you should listen to what moly prices are saying, especially about the profitability of moly projects. Moly prices cannot be manipulated to the downside, as they are not traded on any futures exchange.
Moly prices have been above about $25/pound for OVER two years now, and are telling us to invest in a good moly project. Idaho General Mines is the best moly stock I’ve found, out of about 20 of the best ones.
So, why does the stock remain so cheap? Several reasons.
First, over two years ago, Idaho General Mines acquired the Mt. Hope moly project at a fire-sale low price from a private family who had been sitting on it for years, back when the moly price was lower than $15/lb.
Second, I began promoting this stock just this year, in January 2006, when the stock was $1/share. (You should subscribe to get my free email newsletter at silverstockreport.com).
Third, about 7 months ago, GMO completed a $30 million financing at $2/share, to help them get through the permitting stage. This stock placement recently came free trading on about August 6th, which caused selling pressure back down to $2/share.
Fourth, only about 3 months ago, GMO was listed on the AMEX.
But in the past year, Mt. Hope has proven to be the undisputed largest moly project in the world in the permitting stage. It also has the lowest cash costs of the world’s major moly projects, with the highest grades of moly of the big open-pittable projects, with the most moly to be produced per year, with the lowest relative capital costs to construct the mine. At current moly prices, capital costs of $415 million could be paid back in 6 months (after permitting and mine construction)!
If GMO produces 33 million pounds of moly at $27.50/lb., at cash costs of $3.15/lb., that’s a projected EBDTA (earnings before depreciation, taxes & amortization) of $803 million per year!
This moly project will be wildly profitable even if moly prices drop back to $7/pound.
The location is Nevada, which is the best jurisdiction politically on earth for any mining project.
I’ve visited the Mt. Hope project in the fall of 2005, and I saw the warehouse full of drill cores.
GMO has substantially updated their web site in recent months with new information for investors. See
http://www.idahogeneralmines.com/igmidir2/investors.htm
See also their Frequently Asked Questions page:
http://www.idahogeneralmines.com/igmidir2/investorfaqs1.htm
Some questions I’ve received are generally how this company compares with many others.
Many moly projects have higher grades, but will only produce about 1-2 million pounds of moly per year, not 35 million pounds like per year like this one.
GMO has the highest grades of the large projects.
GMO is the largest moly project out there, by far. Adanac, another moly company, will produce only about 11 million pounds of moly per year, which is 1/3 as much, and Adanac has cash costs nearly twice as high, with lower grades of moly, and has capital costs about the same.
Now, there are other big copper/gold/moly projects such as Northern Dynasty, which has a market cap five times as high at $545 million or more. But that is mostly a copper project, their moly grades are very low by comparison, and their overall grades are also low by comparison. Also, it is still being drilled, and may not be permitted until 2011, and my cost between $600 to $800 million to build their mine.
Northern Orion, another gold/copper/moly project, also has a market cap of about 6 times higher, at $600 million. NTO is still working on feasibility, has moly grades 1/3rd as rich as GMO, and has low copper grades of .3 to .4%, and is located in more politically risky Argentina, and will probably also require substantially higher capital costs to get started.
I strongly suggest that you put no more than 10% of your portfolio into any one thing. But I also strongly suggest that you put up to 10% of your portfolio into GMO. This stock is now liquid, on a major exchange, on a price dip, and has the most leverage and potential of any stock that I know of. I think the biggest risk is permitting, although permitting is progressing nicely.
Idaho General Mines, Inc. Announces Progress Permitting the Mount Hope Molybdenum Project in Nevada, Wednesday October 18
http://biz.yahoo.com/bw/061018/20061018005283.html?.v=1
Financing should be easy.
If GMO raises $500 million at $10/share, for 50 million more shares, that will be 107 million shares. If they earn up to $800 million per year, that could give them a market cap of $4-8 billion, which would imply a stock price of $37 to $74/share. That’s substantially higher than the $2.46/share it’s trading at today.
Possible share price timeline:
Promotion throughout 2007. $2-7/share.
Permitting completed by 2008. $7-14/share
Financing completed by 2008. $19-18/share.
Mine completed by 2009. $15-30/share
Mine producing by 2009. $20-40/share.
Mine producing with history, 2010. $40-80/share.
The stock could go higher than that, of course, as I expect molybdenum to continue to be in high demand. Moly is primarily used as an ingredient in steel, such as zinc. Zinc prices have also exploded, for much the same reason! The world economy is booming!
A Hungry China Set to Gobble More Moly
By Steve Christ, July 21, 2006
http://www.siliconinvestor.com/readmsg.aspx?msgid=22644612
The Northern Miner, June 2005, Quote:
“The future looks good for molybdenum,” says McDonald. “We can’t predict where the price is going, but it does look as thought the fundamentals have shifted positively. We know the demand is strong and growing at ten per cent per year; we just don’t know where the supply is going to come from.”
The Northern Miner Article does not mention Idaho General Mines.
http://www.rocamines.com/i/pdf/nminer-jun242005.pdf
As a further benefit, if there is a substantial inflation, and if moly prices continue to outpace inflation, so, too, will the share price of GMO outperform inflation.
I believe GMO is a perfect diversification for silver investors. If the world economy, especially China’s, continues to boom, moly will be in even higher demand, and GMO’s stock should explode by up to 20 to 40 times higher, or more. If the world economy collapses due to a currency crisis, silver bullion should grow in value 20-40 times higher. If the world somehow manages to limp along somewhere in between, GMO should grow in value by about 100% per year for the next 5 years, and silver should do about the same.
I visited the GMO booth at the Silver Summit, and I spoke with Mr. Russell, president of GMO. The project is progressing nicely. I also learned that the current tire shortage for miners should end by 2008, as three new major tire plants are now in construction.
Links for your further due diligence:
The 156 page prospectus for Idaho General Mines, for the Toronto Listing, released late December 2005:
http://tinyurl.com/da89r
July 2005:
MOLY REPORT by Teck Cominco (mining major, #9 moly producer in the world)
–mentions IGMI on page 15
–is very bullish on moly
http://www.teckcominco.com/presentations/ms-canaccord-moly-july05.pdf
Timing: This email is going out to about 100,000 opt-in email addresses, and about half will read this in 24 hours. Therefore, unless you are prepared to buy right away, you may consider doing further research while waiting for a dip in the price. On the other hand, there is no guarantee on what the price may be in the future, and we do live in a world of “first come, first served”, and it is a bull market in metals, in my opinion. Markets wait for no one.
Sincerely,
Jason Hommel
silverstockreport.com
(This second report is going out to my list of 33,600.)